A Dash of Reaganomics, Mixed with Classic Industrial Policy

Japanese Prime Minister Shinzo Abe makes a toast after he delivered a speech “UK-Japan relations; Abenomics” at the Guildhall in London in May.

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Tax cuts. Deregulation. Unleashing the power of “corporate managers and individual citizens.”

The top-line rhetoric for Prime Minister Shinzo Abe’s new growth strategy makes it sound like the Reagan revolution has belatedly spread to Japan.

But read the full “Japan Revitalization Strategy,” and a different picture emerges. Mr. Abe’s vision for restoring Japan’s mojo relies as much on the active, helping hand of Tokyo bureaucrats as the invisible hand of markets. There’s a good dose of the industrial policy that famously steered Japan’s rapid growth through the 19th and 20th centuries, albeit updated for a post-industrial 21st-century economy.

“In order that Japan can continuously lead the world with advanced technologies, leaving it to the efforts of the private sector alone will face limits,” the blueprint says. “We must build a national system of innovation.’”

Under this vision, “the government will promptly launch a robot revolution realization council,” as well as “a headquarters for medical research and development.” Rather than trying to spur venture capital — virtually non-existent in Japan — through cutting red-tape, the plan promises a new “Venture Creation Council.”

The main tax cuts — a reduction in the corporate rate — are justified by textbook supply-side logic, tying the change to “revitalizing private sector investment.” But the plan makes clear that the proposal will be revenue neutral, combined with “such measures as broadening the tax base and so forth.” In other words, the full proposal shifts taxes around, but doesn’t offer a net reduction in the tax burden on the economy.

Mr. Abe may well succeed in revving up Japan’s growth. If so, he’ll do it by shaping and tweaking Japan’s regulatory traditions, more than by embracing American economics textbooks.

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